Housing Outlook Continues to Brighten but Recovery Faces Headwinds

Berson projected GDP growth of 2 to 2.5 percent this year, with slower first quarter growth in response to the unresolved spending issues before the economy picks up modestly as the year progresses. If the full spending sequester is triggered and more than $100 billion in defense and non-defense cuts is implemented this year, then 2013 growth could fall to 1 to 2 percent.

If a relatively positive outcome occurs on the spending debates in Washington, Berson said this will pave the way for the housing and auto industries to lead the economy in 2013. Low mortgage rates, steady job growth, stronger household formations and widespread house price gains over the past year are all positive for home sales.

At the same time, in places where buyers are ready to go forward with a purchase, persistently tight mortgage credit standards continue to limit the number of creditworthy borrowers from entering the housing market, he said.

"The problem is mortgage lending standards are way too tight," he said. "If we were at a scale of nine or 10 in 2005-2006, we are at a two today. We want to be around a five."

Moreover, Berson noted that several federal agencies will be releasing final rules later this year on a national qualified residential mortgage standard that could further restrict mortgage lending.

Low Mortgage Rates Drive Housing Demand

Qualified buyers who gain access to credit will find affordable home loans, according to Frank Nothaft, chief economist at Freddie Mac. He said that 30-year, fixed-rate mortgages will stay below 4 percent through the end of 2013.

"An important stimulant driving housing demand has been declining mortgage rates," said Nothaft. "These are the lowest rates we have seen in 65 years."

The refinance boom for single-family homes associated with low mortgage rates is expected to continue this year but gradually taper down. While overall mortgage originations are forecast to fall 15 percent in 2013, Nothaft said that home purchase originations will be trending higher, thanks to a projected 8 percent increase in home sales this year.

U.S. house prices increased 4 percent between September 2011 and September 2012, according to the Freddie Mac House Price Index, and this included price hikes in 42 states. By comparison, home price appreciation only occurred in a handful of states during 2010-2011.

Nationwide home prices are expected to rise 2 to 3 percent in 2013, added Nothaft. With the oversupply of vacant homes at their lowest level in a decade, this will further ease downward price pressure.

Rental vacancy declines have occurred in most markets since 2010 and U.S. apartment values are up about 8 percent over the past year. This has led to an increase in rental rates, but rents still remain relatively low adjusted for inflation, said Nothaft.

Nothaft forecast 930,000 housing starts for 2013 and Berson said starts could hit 980,000 this year.